The world’s biggest machine needs a major upgrade.
I’m talking about the U.S. power grid.
It’s made up of over 11,000 power plants, about 700,000 miles of transmission lines, and more than 5 million miles of local power distribution lines.
It’s a very important part of our daily lives.
But it has a major weak link – the transmission network.
More than half of the transmission lines in the country were installed before 1970. And every year, we’re asking those aging power lines to handle more and more electricity.
The system is being pushed to the limits of what it can handle. More transmission lines are needed.
Today I’ll give you an update on what’s being done to solve the transmission problem. I’ll also show you one way to profit from the money that’s flowing into this sector.
The Transmission Network Problem
The Department of Energy just launched “the largest-ever investment in America’s grid.”
Last October, it announced $3.5 billion in awards to support 58 transmission projects across 44 states. Local governments and private investors are also throwing in $4.5 billion to build these projects. That brings the total to an $8 billion investment in the power grid.
And it’s just the first round of funding available through the Grid Resilience and Innovation Program (GRIP). GRIP was created by the 2021 Bipartisan Infrastructure Law and has $10.5 billion to spend on the country’s transmission system.
That money will help jumpstart transmission projects that are desperately needed.
Last year, the Department of Energy released its first National Transmission Needs study.
It shows that we need to expand the country’s transmission system 57% by 2035 to match current demand growth and clean energy policies.
That means we should be building more than 33,000 miles of transmission each year.
Less than 700 miles of transmission lines were built last year.
The lack of transmission capacity is already draining our wallets through higher energy prices. In 2022, congestion on the U.S. power grid caused consumers to pay $20.8 billion more than they had to.
And demand for electricity is going to keep growing – more electric vehicles, more data centers running artificial intelligence programs, and more buildings in need of air conditioning.
But, certain parts of the country have a greater need for transmission projects than others…
Where Most of the Money is Going
According to the Department of Energy report, the Southeast, Plains, Midwest, and Texas will need the newest transmission.
Texas and the Southeast are parts of the country that are gaining the most population. So demand is increasing rapidly.
Meanwhile the Plains and Midwest have the best potential for renewable energy. But building new power plants in these rural areas will require long power lines to connect them to cities.
And there’s one company that will be doing a lot of work in these areas…
Xcel Energy (XEL) is an electric utility that serves customers in Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas, and Wisconsin.
These are areas that will have the highest need for transmission. And Xcel Energy will have a good chance of winning government grants to finance those projects.
The biggest award from the first round of GRIP funding went to a portfolio known as the Joint Targeted Interconnection Queue. It gave $464 million to support five transmission projects across seven Midwest states.
And Xcel Energy is building two of those.
So the company is already collecting free money to build infrastructure projects that will boost its earnings for decades to come.
Xcel Energy yields 3.5% and is a reliable dividend grower. It has also increased its dividend 20 years in a row.
And right now, its shares trade at less than 17x earnings. That’s more than a 15% discount compared to its average of 20x earnings over the past decade.
So Xcel Energy is a great way to profit from, and invest in our country’s need for an upgraded power grid.
Happy SWAN (sleep well at night) investing,
Editor, Intelligent Income Daily